Microfinance Institutions in Ethiopia: Poverty Outreach and Financial Sustainability

Abstract

This study examined the relationship between poverty outreach and financial sustainability of the
Microfinance Institutions (MFIs) taking MFIs operating in Ethiopia as a case in point. In
addition to understanding the relationship, it also examined the trend of the institutions’
performance along the outreach and sustainability dimensions. The study was based on the data
obtained from Association of Ethiopian Microfinance Institutions (AEMFI). The analysis of
findings revealed that while industry has made major improvements along outreach and
sustainability performance variables (number of women borrowers, total number of clients
served, outstanding loan portfolio, and saving mobilizations), the savings element has not grown
large enough in relation to loan portfolio to make the industry meet its demand for loan from this
source. Though, there is improvement in terms of financial sustainability, the industry’s average
operational self-sufficiency and financial self-sustainability ratios are not far from the breakeven
point. The findings of this study revealed the possibility of tradeoff between the social and
financial goals of the MFIs. Viewed from stand point of microfinance’s social mission
sympathizers, this is not good news as an increasing focus on financial bottom line could make
the MFIs to move their eyes away from serving the poor.